Wyndham has announced that its Board of Directors unanimously rejected a highly conditional, unsolicited stock-and-cash proposal by Choice Hotels International, Inc. to acquire all outstanding shares of Wyndham.
Wyndham's Board of Directors, together with its financial and legal advisors, closely reviewed Choice's latest proposal with a nominal value of $90 per share, comprised of 45 percent in stock and 55 percent in cash and determined that it is not in the best interest of shareholders to accept the proposal.
In rejecting Choice's proposal, the Wyndham Board of Directors determined that the proposed transaction involved significant business and execution risks. This included an extended regulatory timeline and uncertainty of outcome, potential franchisee churn, and excessive leverage levels at the pro forma combined company.
The consideration mix includes a significant component of Choice stock, which the Board believes is fully valued relative to Choice's growth prospects, especially when compared to Wyndham. A spokesperson said the offer is opportunistic and undervalues Wyndham's future growth potential.
Stephen P. Holmes, Chairman of the Wyndham Board of Directors, said that Choice's offer was underwhelming, highly conditional, and subject to significant business, regulatory and execution risk.
“Choice has been unwilling or unable to address our concerns. While our Board would support a value-maximising transaction, given the substantial, unmitigated embedded risks and value destruction potential presented by the proposed transaction, our Board determined it is not in the best interests of Wyndham shareholders. We have engaged with Choice and its advisors on multiple occasions to explore these risks,” said Holmes.
Wyndham's Board believes that during the long period between the announcement and closing or termination of the transaction, Wyndham shareholders would be exposed to the threat of significant long-term deterioration of Wyndham's brand equity, franchisee churn, and impaired integration execution at the combined company in which Wyndham shareholders would have significant interest.
In addition, the significant amount of debt required to fund the cash portion of the deal would result in the combined company's net leverage being over six times adjusted EBITDA. This above-market leverage would increase execution risk and restrict the balance sheet flexibility of the combined company, putting downward pressure on future growth potential, share price and valuation multiples. As a result, the value creation from cost synergies may not be fully realised.
Wyndham's Board also has significant questions and concerns about the value of Choice's stock. Choice's latest offer included 45 percent in Choice stock, which Wyndham's Board believes is fully valued. Industry experts unequivocally share the view of Choice being fully valued, with over three-quarters of research analysts having a Choice at a Sell or Hold rating.
